JKJ Pension Fund Harvard Case Solution & Analysis


JKJ pension fund hired Sarah Griffin as the portfolio manager in charge of real estate investments. Sarah Griffin is hired in order to create the business strategy for JKJ pension fund that includes the plan about what to do with the existing portfolio as well as advice for new investment opportunities.  Additionally, Pension funds are one of the fastest way of saving in the domestic economy as well as one of the largest pools of private capital in the world. In addition to this, pension funds have benefited over the private taxpayers as they do not pay taxes.

Furthermore, JKJ pension fund is considered the significant player by Sarah Griffin in the real estate industry. Sarah Griffin needs to consider a range of issues, from the diversification by property type to the ease of management in order to effectively evaluate the overall portfolio strategy. JKJ pension fund did not make any new investments or sales for three years, instead it focused its efforts to manage the eleven existing properties because of the real market collapsed in the year 1990.

Problem statement

Sarah Griffin is presently facing the challenges in order to effectively analyze the value of the eleven existing properties and in identifying the ways to manage these eleven existing properties.

Case Analysis

Following are the issues that are covered in the report:

  • Portfolio and diversification.
  • Analysis of all the available property options
  •  Cash flows and level of risk of each option.
  • The decision to sell or hold the options.
  • Recommendation on the basis of overall analysis.

Portfolio and Diversification

The diversified portfolio of JKJ pension fund consists of the collection of investments mainly in the fixed income products, government bonds, common stocks, real estate equities and other conservative investments. In addition to this, the diversification strategy of JKJ pension fund is to minimize the risk as well as maximize the profit over the investments.

The blocks in the development of the diversification strategy should include the classes of investments, types of assets and potential growth of the investment. The other important factors in developing the diversification strategy for JKJ pension fund includes risk associated with the investment, management skill regarding controlling of the investments and return on the investments.

Analysis of all the available property options

Property 1: Undeveloped Land

This portfolio consists of the three undeveloped sites that are labeled as Lots A, B and C in the Wilshire section of Los Angeles. The Lot A consists of the 120,000 square foot land where, according to current zoning 812,000 SF can be built, Lot B consists of the 180,000 parcels  where 900,000 SF space can build and Lot C consists of the 60,000 square foot land where according to current zoning 270,000 SF can be built. In addition to this the Lot A can generate the annual return of $35,000 while the Lot B contain Carrying costs about $24,000 per year.

The cash flows of the property 1 shows the favorable results for the future earnings. Whereas on the other side, the risk associated with the investment is also low. The capitalization rate for retail and residential is ranging between 7.5 - 9.5% and this hotel is currently leased for 20 years, so, the level of risk is low for the property 1 option.

Decision (HOLD)

Sarah Griffin should hold this option as the market value $ 540,909 of undeveloped sites is less as compared to this the investment $ 3,600,000.

Property 2: Wilshire Plaza Garage

The Wilshire Garage consists of a 3,500 spaces on five levels from three are subterranean and is located beside the Royale Plaza Hotel. In addition to this, there are around 1600 monthly car parking as well as 1000 transient spaces that are available on the daily and hourly basis. There are also approximately 900 spaces that are used by an adjacent hotel.

Additionally, the cash flows for the Wilshire Garage indicating the favorable results for the future growth and earnings of the investment. The capitalization rate for the garage is ranging between 10.0% - 12%, whereas the level of the risk for the Wilshire Garage is moderate as the Wilshire Garage is producing revenue presently by three different parking.

Decision (HOLD)

Sarah Griffin should hold this option as the market value of Wilshire Garage is$10,730,000 is less as compared to the investment of $21,400,000.........................

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